Distributions on instrument accounts with zero balance on investor account

If a client gets a unit distribution or a cash distribution in an instrument where he/she already sold/switched all units in the instrument out and he/she selected to re-invest the cash distribution or leave the unit distribution in the instrument, the client remains with small units on the instrument account. The client might have closed the account but will continue to receive distribution units from future distributions on the previous distribution units in the instrument.

To prevent small amounts of units remaining on a closed account, an alternative option can be selected under System-> Configuration

If this option has been selected the system will behave as follows:

Distribution in Units

If the balance on an instrument account of an investor account is zero at the re-investment date of a distribution
distribution units will be exchanged to the working portfolio and an equivalent cash amount from the working portfolio to the investor’s transacting cash instrument
the exchange will happen on the reinvestment date of the distribution, to prevent units remaining in the instrument that will result in future distributions distributing to the client in the relevant instrument

Distribution in Amount

If the balance on an instrument account of an investor account is zero at the re-investment date of a distribution
and the distribution option on the account is set as reinvest distribution, the distribution amount will remain in cash and will not be reinvested
if the distribution option on the account is set as Payout distribution, a withdrawal will be done as usual
if the distribution option on the account is set as Leave distribution in cash, the distribution amount will remain in cash as usual

Example:

Investor A has 100 units in instrument A
on 29 June 2023 a distribution is declared for instrument A
distribution declaration date = 2023-06-30, reinvestment date = 2023-07-05
on 2023-07-02, investor A switches or withdraw all 100 units in Instrument A
on the distribution reinvestment date, Investor A has a zero balance in instrument A
the process above will be triggered if ‘Exchange distributions on zero-balance instrument accounts for cash?’ has been selected on the configuration screen.

Last Updated on 1 year ago by Debra Hart